Ronald D. Sugar
Chairman and Chief Executive Officer,
Northrop Grumman Corporation
On Tuesday, April 24, 2007, Northrop Grumman Chairman and Chief Executive Officer Ronald Sugar appeared on the Bloomberg Television program "On the Economy" to discuss the company’s 2007 first quarter financial results. Below is the transcript.
KATHLEEN HAYS, anchor:
Tight labor markets; shortages of skilled workers. This is what we hear from companies across the nation, suggesting the economy is still healthy, despite the downturn in housing we were just talking about. At shipbuilding giant Northrop Grumman, another sign workers may be regaining market power: A four-week strike at a Mississippi shipyard forced management to agree to a 15.2- percent wage increase over three years, up from 14 percent previously. And this, in turn, clipped Northrop Grumman's first-quarter profit, which came in a bit lower than analyst forecasts. For more on this quarter and what lies ahead, we bring in Ron Sugar, Northrop Grumman's CEO. Ron, welcome to the show. It's great to have you on today.
RONALD SUGAR:
Thank you, Kathleen. I'm pleased to be here.
HAYS:
So, again, on this show, we watch the labor market broadly a lot. And it's always interesting to talk to an individual company about their own experience. Is the labor market tight for you? Are you in a position more where you have to bargain with skilled workers, you have to make the concessions, because there just aren't as many people out there?
SUGAR:
Well, the preponderance of our 125,000 people are not organized in labor unions. Down in the Gulf area, we had a very special situation, Kathleen. Following Hurricane Katrina, there were some very significant disruptions of people's lives, their homes, the workforce, and also, frankly, competition for skilled laborers – of which he have the largest group; we're the largest employer down there – for other construction trades.
So, we had to deal with that reality and make some adjustments in our plans. But the folks are back to work and they're building great ships. And that's all behind us now.
HAYS:
Before I move on from this point, though, where workers aren't unionized, do you have the same kind of thing, though, without a strike? That you find that you have to, maybe, pay up a little more, be a little more generous, to find and retain the skilled workers that you need?
SUGAR:
Well, Kathleen, most of our workers are highly skilled. Many of them are educated scientists and engineers. And, yes, there is clearly a marketplace for people of that caliber and talent. Certainly, young people coming out of college, and also people in mid-career. So, we find we have to track the market carefully. We also know that there are regional variations, as well.
One of the things that we do to differentiate ourselves is to try to be a preferred employer – to make it more fun to work at our company, make the projects more meaningful. And, of course, we have to pay people right.
HAYS:
How big an impact was the strike financially, and is that going to continue on into the second quarter?
SUGAR:
Kathleen, the strike was not a huge impact to the company. You know, we were over $30 billion revenues for the year. The strike affected us about by 50 of that. We'll have a little impact into the second quarter because the strike was not resolved until the second week of April. We'll catch up on most of that through the rest of the year, and we'll move on. Yes, it was a little bit of a setback, but certainly, in the scheme of things, not significant.
SUGAR:
And, as I've said, we've reconfirmed our guidance for the year. We had a terrific first quarter despite that. We were up in sales, up in profits, up in earnings per share, tremendous cash and great new bookings. So, we're very pleased, overall, with the first quarter, and we expect the year to be pretty good going forward.
HAYS:
How did you increase your ship sales, even with that strike going on?
SUGAR:
Well, we have multiple shipyards. We have almost 40,000 people building ships. The strike was in one of our four or five shipyards, not in the rest of them. If you think about our operations in Newport News, we're still building aircraft carriers and submarines there. There was no interruption of work.
HAYS:
I want to switch gears and talk about Northrop's ventures now. You’re diversifying. You're not just building ships. You're not just doing this sort of military work, but many non-defense projects, including a test camera technology that helps people track stolen cars. An interesting story in The L.A. Times recently about this. Tell us more about that.
SUGAR:
Well, we are primarily a company focused on national security, but increasingly now, homeland security and related markets. We found that the core technologies of the company and information-secured networks, some of the sensor work we do, allow us to do other things. For example, we were able to competitively win and now install a secure wireless system for emergency responders in New York City. This will allow firefighters, policemen and other emergency workers to talk together in urban canyons and in high-rise buildings. We're putting it in hundreds of sites throughout the city. All the boroughs will be connected together. That's a significant opportunity for us, where we took core technologies we're good at in defense, and move them to a more civil application.
We're doing that across the board. We're doing other things. Today, we just announced that we had won nearly a $1-billion program to do an advanced sorting system for the United States Post Office for large packages. So, examples where we can take our technology and apply it elsewhere are very important for us.
HAYS:
And, Ron, how much revenue, how much of your profits or whatever, do you get from those kinds of projects now? And over time, how much diversification, how much will the company be able to depend on, generate, from those kinds of new ventures?
SUGAR:
Well, I think 90 percent or more of our business comes from government, about 70 or 80 percent from defense. So, probably, 10 percent or so from things that are not defense, growing over time in absolute amounts. Maybe not so much a percentage of sales, because we do expect our top line to grow on the defense side, as well. We'll always be a national security company first and foremost. But we're going to see an increasing amount of non-defense work coming, as well.
HAYS:
All right. Ron, thanks for joining us today.
